aggregate demand

Question 1

what is an aggregate demand curve

Answer 1

the relationship between the level of aggregate demand and the overall price level - shows a measure of spending at any given possible overall price level.

Question 2

what does the aggregate demand curve show

Answer 2

the total amount of goods and services demanded in an economy at any given level of prices

Question 3

what is the relationship on the aggregate demand curve

Answer 3

the total amount of goods and services and the overall price level

Question 4

what is on the x - axis on the aggregate demand curve

Answer 4

real output

Question 5

what is on the y - axis on the aggregate demand curve

Answer 5

price level

Question 6

what does a low overall price mean

Answer 6

high consumption (ceteris paribus)

Question 7

what is the real balance effect

Answer 7

an effect by which an increase in the average price level reduces purchasing power and thus the quantity of real output demand

Question 8

what does a change in the overall price level mean

Answer 8

it induces movement along the demand curve

Question 9

what does a change in the components of aggregate demand mean

Answer 9

will result in a shift of the curve

Question 10

what is the aggregate demand curve equation

Answer 10

C + I + G + (X-M)

Question 11

what does C mean in the aggregate demand curve equation

Answer 11

consumption - over half of aggregate demand

Question 12

what does I mean in the aggregate demand curve equation

Answer 12

investment - production of goods used to create other goods which allows components to grow

Question 13

what does G mean in the aggregate demand curve equation

Answer 13

government spending - spent on things everyone benefits from which can have the positive multiplier effect.

Question 14

what does (X-M) mean in the aggregate demand curve equation

Answer 14

net exports - the difference between exports and imports - exports can boost AD and imports detract from AD.

Question 15

what does aggregate demand show

Answer 15

what’s driving spending in the economy

Question 16

what kind of relationship is there between price level and real GDP

Answer 16

an inverse relationship

Question 17

what is aggregate demand a measure of

Answer 17

a measure of spending (total expenditure)

Question 18

what are the three reasons the aggregate demand curve is sloped downwards

Answer 18

1. Wealth effect (c)
2. Trade effect (X-M)
3. Interest effect CIY,(X-M)

Question 19

what is the Wealth effect (C)

Answer 19

as price level decreases the purchasing power increases (people are richer) so they spend more, increasing C

Question 20

what is the Trade effect (X-M)

Answer 20

as the price level decreases exports become more competitive and imports become less competitive so there is greater demand for exports and they generate more revenue increasing X and opposite for imports decreasing M

Question 21

what is the Interest effect CIY,(X-M)

Answer 21

as the price level decreases, interest rates can be kept lower stimulating higher consumption, investment which reduces exchange rates and can boost net exports.

Question 22

what is the factor that always changes and affects why the curve slopes downwards

Answer 22

price level

Question 23

when does AD shift

Answer 23

when C,I,G OR (X-M) change independent of the price level